Time Warner, the world's biggest media company, has said a strong performance in films and cable TV has returned it to "health and vitality".

The company posted net profits of $638m (£350m) in the fourth quarter of 2003, a far cry from the $44.9bn loss chalked up a year earlier.

That catastrophic 2002 loss resulted from a writedown of its AOL online arm.

Now, the decline of AOL is slowing, and the company is trumpeting success in more traditional media.

In particular, its New Line cinema unit has profited hugely from the Lord of the Rings franchise, while Warner Bros is still reaping revenues from Harry Potter and the Matrix.

Back from the brink

A year ago, the media giant looked in imminent danger of being forced into a break-up.

The much-ballyhooed merger between AOL and Time Warner, completed in 2000 for $180bn, did not produce the hoped-for cross-media synergies, and AOL was never able to meet its ambitious subscriber or revenue targets.

Aside from dropping AOL from its official name, however, the company has resisted calls to sell off its internet interests.

In 2003 as a whole, AOL's revenues fell by 5%, as gains in subscriber revenues - especially in Europe - were offset by a weak advertising market.

But the firm insisted that the unit should post gains in revenues and profits this year.

Ring of confidence

Far more positive was the result at Time Warner's entertainment divisions.

Its cable and films units were the liveliest performers, both turning in full-year revenue growth of 9%.

Film, which accounted for about one-third of the company's overall sales, was particularly boosted by the rapid sequential release of the Lord of the Rings trilogy.

The last in the set, the Return of the King, was released on 17 December, and has already grossed $875m - making it the sixth-biggest blockbuster in movie history.

The company's balance sheet was also boosted by proceeds from the sale of Warner Music to a group of investors for $2.6bn in cash, and the $1.1bn sale of its CD and DVD manufacturing operations.

Some investors remain wary about longer-term prospects, however, since no blockbusters even remotely as promising as the Lord of the Rings series are in the pipeline.